K & K G L O B A L C O N S U LT I N G
CROSS ASSET RESEARCH
Best execution & Transaction
Cost Analysis (TCA)
Most buy-side firms should have documented
their revised best execution policies and
procedures by now. Everyone accepts that best
execution is an evolving process where the firm
needs to continuously look at cost improvements.
While it is rumoured that the regulators will give
the buy-side at least 6 months to customise
themselves with the new market structure before
any thematic reviews, it is expected that unless
the buy side have already documented their best
efforts of having all procedures in place ahead of
MiFID II, they may expect a regulatory fine.
K&KGC has shared best practice benchmarking
with the buy side for years and recently showed
them the buy-side’s proposed top-level audit
preparation plans from previous research
initiatives at the Alpha Trader Forums. The sense
of fear and prospect of a regulatory audit and
fines around best execution arrangements is
vastly different between the buy side in the UK,
Continental Europe and USA. The buy side in
Continental Europe and USA mentioned at the
Alpha Trader Forum in 2016 and 2017 that they
were not aware of any buy-side firms in Europe
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and the USA of ever having been fined for sub-
standard best execution policies and procedures.
K&KGC is only aware of one case in Continental
Europe.
TCA technology is maturing in equities and
foreign exchange and there is hope of improved
data delivering better reports for informed
decision making. The buy side need to start
analysing and dictating to their equity trading
counterparties how their orders are routed
to avoid venue toxicity. Due to the MiFID II
transparency deferral arrangements within fixed
income, there will be less expectations to get
holistic real-time TCA reports. Most trading desks
with a fixed income TCA solution in place today
has opted for a technology that is quick and easy
to implement as a regulatory check box. The buy
side are keen to see what TCA solutions transpires
in 2018.
www.buysideintel.com
Winter 2017